President Duterte has shunned protectionism in favor of trade-policy continuity after he issued three consecutive executive orders (EO) mandating concessionary tariff rates for certain products.
Duterte issued EO 23, extending for another three years the reduced rates of duty on agricultural goods covered by the Philippines’s tariff commitments to the World Trade Organization (WTO).
A month before the expiry of the country’s rice-import cap, the President signed EO 23 to prolong the validity of most-favored nation (MFN) tariff rates on agricultural products under Republic Act (RA) 10863, or the Customs Modernization and Tariff Act.
The Philippines’s waiver on the special treatment of rice is set to expire on June 30.
One of the concessions approved by EO 23 was the lowered tariff on mechanically deboned meat, which would remain at 5 percent until 2020 before reverting to its original rate of 40 percent in 2021.
Tariff on butter was kept at 5 percent for another three years. Buttermilk, along with grated and powdered cheese, is slapped a mere 1-percent duty. Exporters of potato, on the other hand, will enjoy tariff-free privilege in the Philippines before a 10-percent rate of duty is imposed in 2021.
The Philippines will also continue to comply with its minimum access volume commitments of 805,200 metric tons on rice per year, with a lower tariff of 35 percent. In 2021 rice imports will be slapped with a higher tariff of 40 percent, as stated by EO 23.
The temporary modification of MFN tariff rates is effective until June 30, 2020, or until such time a law amending certain provisions relating to rice in RA 8178, or the Agricultural Tariffication Act, is enacted, whichever comes first.
The Philippines in April has informed the WTO it was not able to convert its quantitative restriction (QR) on rice into tariff, citing delay in the amendment of RA 8178. Agriculture Undersecretary for Policy and Planning Segfredo R. Serrano said there are bills already filed in Congress to amend RA 8178, but lawmakers are not poised to pass it into legislation before the QR on rice lapses on June 30.
“As a gesture of goodwill and to avoid disputes, the Philippines would maintain the concessions, while RA 8178 has not yet been amended,” Serrano said.
According to Serrano, amending RA 8178 is necessary to allow the conversion of the QR on rice into tariff. He noted that under the law, rice is the only agricultural commodity with an import cap and it did not specify a termination date for it.
In 2014 the Philippines was granted by the WTO a waiver on the special treatment on rice, allowing the country to keep its QR on rice until June 30.
EO 23 repeals EO 190, Series of 2015, which listed the concessions the Philippines have to honor for it to continue implementing its rice-import cap. Concessions charted under EO 190 will expire on July 1.
Capital equipment
To support enterprises in their start-up operations and expansion, Duterte has adhered to the recommendation of the National Economic and Development Authority to extend the zero-percent duty on principal assets imported by firms registered with the Board of Investments (BOI).
Through EO 22, “any importation of capital equipment, spare parts and accessories by BOI-registered enterprises shall be subjected to zero-percent duty”. The President approved the extension of the tariff-free importation to enhance competitiveness within the business industry, in line with one of the goals of the Philippine Development Plan (PDP) 2017-2022.
The zero-percent duty is applied to importations made by new and expanding firms under the BOI of principal assets indicated in RA 10863. Upon issuance by the BOI of a certificate of authority, the business enterprise can already import tariff-free capital equipment, spare parts and accessories. This is as long as the items “are not manufactured domestically in sufficient quantity, of comparable quality and at reasonable prices; and are reasonably needed and will be used exclusively by the enterprise in its registered activity”.
On the other hand, the BOI-registered enterprise cannot sell, transfer or dispose of the principal assets, without prior approval from the BOI, within five years from the date of its purchase. Should it pursue to do so, the firm will be sanctioned twice the amount of the duty forgone, or P500,000, whichever is higher, without prejudice to other applicable penalties under the law.
The BOI is tasked to draft and publicize the implementing rules and regulations of EO 22.
“The grant of duty-free importation of capital equipment remains to be an important fiscal incentive in promoting investments into the Philippines considering the global competition for foreign direct investments,” EO 22 read. It added that PDP 2017-2022 clearly stated the administration’s goal of reaching an efficient national competition policy.
IT products
The President also issued EO 21 modifying the “nomenclature and the rates of import duty on certain information-technology [IT] products under Section 1611 of the Customs Modernization and Tariff Act, in order to implement the Philippines’s tariff commitments under the WTO”. Malacañang has yet to release the annex on the covered IT products.